Tennessee's average combined state and local sales taxes highest

Although Tennesseans' overall state and local tax burden is second lowest among the states, Tennessee still has the highest combined state and average local sales tax rate of any state in the country, according to an annual ranking by the Tax Foundation, a tax research organization.

Tennessee's combined state and average local sales tax is 9.44 percent. Arkansas ranks second at 9.18 percent.

The Tax Foundation's annual report on sales taxes says retail sales taxes are one of the more transparent ways to collect tax revenue because "people can reach into their pocket and see the rate printed on a receipt."

All but five states levy a statewide sales tax, and local sales taxes are collected in 38 states. The Tax Foundation says these rates can be substantial enough that a state with a moderate statewide sales tax could have a high combined rate. The report provides a population-weighted average of local sales taxes in an attempt to give a sense of the statutory local rate for each state. The weighted average local sales tax rate in Tennessee is 2.44 percent, according to the foundation

Tennessee's state sales tax is 7 percent, the second-highest state rate in the nation, but that rate is shared by five other states, all of which trail California's 7.5 percent state rate. Tennessee towns and cities can impose additional sales tax rates of up to 2.75 percent. The local sales tax rate in Memphis and unincorporated Shelby County is 2.25 percent and the suburban cities have gone to 2.75 percent to pay for new school systems.

Tennessee is also one of about a dozen states that levy state and local sales taxes on grocery food, although the state rate is lower — 5 percent on grocery food as of July 1 of this year. Local sales taxes on food are not reduced.

The report notes that sales taxes are just one component of state and local tax burdens, and in a report in March, the Tax Foundation ranked Tennessee 49th among the states in overall state and local tax burdens. "Of course, sales taxes are just one part of an overall tax structure and should be considered in context," said the foundation's economist, Scott Drenkard.

"For example, Washington State has high sales taxes but no income tax; Oregon has no sales tax but high income taxes. While many factors influence business location and investment decisions, sales taxes are something within policymakers' control that can have immediate impacts."